Hard to See Clearly The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not in any case serve as a basis or be considered as an incentive to engage in any investment. The macro point Hard to See ClearlyThe Macro OverviewThe rise in energy prices (such as gas) does not have a direct impact on the foreign exchange market. The EUR/USD showed little reaction to the unprecedented surge in gas prices on international markets last week. However, the deterioration of the energy situation reflects the challenges faced by economies in this post-lockdown period. Forecasters anticipated a long phase of economic recovery in 2022 and 2023. This will not be the case. Statistics published in recent days have painted a mixed economic picture. In Germany, growth in the third quarter rests solely on activity in the services sector. The manufacturing sector, traditionally the engine of the German economy, is lagging. Industrial production in August collapsed by 4% over a month – much more than the consensus forecast (-0.5%). In France, disruptions in the supply chain and rising energy prices are penalizing the manufacturing sector. Some companies are considering reducing production to cope. The services sector is more robust. But concerns remain about companies' equity levels and their ability to reinvest the savings surplus linked to the crisis into the economy. Fortunately, the pandemic is receding across the European continent. No new variant potentially more dangerous than the delta variant is circulating. The possibility of a lockdown this winter is excluded.The rise in inflation is one of the defining features of the current period. The European Central Bank and the U.S. Federal Reserve continue to argue that the increase is temporary. Other central banks do not share the same diagnosis. Last week, New Zealand's central bank raised its main interest rate for the first time in seven years by 25 basis points to 0.50%. The Polish central bank caught traders off guard with a massive 40 basis point increase in its main rate to 0.50%, causing a surge in volatility on the zloty. Other central banks will follow. The emerging divergence in monetary policy will have consequences on currency fluctuations and could bring back into favor carry trade strategies, which take advantage of interest rate differentials between currencies. In a world of ultra-low rates, carry trade disappeared. With interest rate hikes happening all around the world, this strategy will again be favored by traders. We are in a transition period, economically, but also in terms of the currency market. Technical point The EUR/USD remains engaged in a long-term downward channel. The drop below the support at 1.16 in the middle of last week constituted a sell signal for many traders. Judging by technical analysis and fundamentals, there are few possibilities for a sustained rebound of the pair in the short term. We expect a rally by the end of the year to the 1.15 zone, with potentially a drop to 1.1465 – this zone serves as the main support. Upcoming central bank meetings, notably the Federal Reserve in early November, could trigger a new retreat of the pair. The EUR/USD finally seems to have come out of its lethargy of recent months!Regarding EUR/GBP, the pair has once again attempted to break out of its three-month range between 0.85 and 0.86. The rise above 0.86 had failed. It is uncertain whether the drop below 0.85 will succeed. One can expect the cross to be a bit volatile in the short term. Therefore, it is imperative to plan a currency hedging strategy to face this uncertainty.The supports and resistances displayed below indicate the respective lows and highs within which the prices should evolve during the week.SUPPORTSWEEKRESISTANCESWEEKS2S1R1R2EUR/USD1.1461.15001.16941.179EUR/GBP0.83150.8400.86000.8636EUR/CHF1.06001.06221.08451.0901EUR/CAD1.43001.43171.47891.4917EUR/JPY127.34128.0131.19133.11For personalized advice on foreign exchange trends and hedging, contact our trading room: Announcements to follow The rise in energy costs and inflation will be at the center of concerns this week. US inflation figures for September (Consumer Price Index this Wednesday and Producer Price Index this Thursday) should confirm that inflationary pressures remain at high levels. Core inflation (which excludes food and energy because they are too volatile) is expected to rise to 4.2% year-on-year – compared to 4.0% in August. It will be increasingly complicated for the Federal Reserve to assert that inflation is transitory (“transitory” in English). According to us, the US dollar should emerge as the winner from a period of persistently high inflation.Below you will find the publications and events that should have a major impact on currency price evolution.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?10/1211:00ZEW Economic Sentiment Index (October)Previous at 26.5 in September.16:00JOLTS Job Openings Report (August)Previous at 10.934M. Job openings should remain very high.10/1314:30Consumer Price Index (September)Annual change, core inflation (excluding food and energy) is expected to rise to 4.2% from 4.0% previously. Such a level seriously challenges the theory of temporarily high inflation.10/1414:30Producer Prices (September)The consensus among economists is that producer prices will continue to rise, but at a slower pace (+0.5% over a month).10/1514:30New York Fed Manufacturing Index (October)Drop to 27.80 – probably due to supply issues and rising costs.16:00University of Michigan Confidence Index (October)First estimate expected at 74.0 compared to 72.8 in September.Did you like this content? Share it!